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International Investing


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I thought it would be best to create a separate thread covering the mechanics of overseas investing.  That is, not individual companies but the tax issues, best brokers, CDIs, ADRs, exchange structures, regulatory and compensation structures, etc.  I have always been an international investor but this is even more important these days given the under-performance of the FTSE and Sterling ((hopefully will change!), the optional diversification of risk, etc.  Even UK listed shares and ETFs can be resident from a WHT, etc POV.   

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Sorry can't seem to edit the above.

Anyway I've dispensed with individual shares with these two investment trusts for an easy life! 

Like you I'm concerned we will be falling behind in the west while Asia surges ahead.  Plus I like having a few investments which are going up instead of down:)

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On 22/10/2020 at 13:12, janch said:

Sorry can't seem to edit the above.

Anyway I've dispensed with individual shares with these two investment trusts for an easy life! 

Like you I'm concerned we will be falling behind in the west while Asia surges ahead.  Plus I like having a few investments which are going up instead of down:)

I hear you.  I think Asia, even Africa, is the place to go.  I adopt a two prong approach.  ETFs, etc for my pension (suitably risk mitigated as much as possible) and individual value based shares.  I note many stocks passing my screeners are Asian based.  Also less wokery is areas like oil and gas.

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I've found brokers offering multi-currency accounts being the best both for minimising exchange fees (by a load in advance and buy foreign stocks from there) and playing currency movements (like getting out of GBP).

So which brokers provide these facilities?  I note none can for ISAs given the HRMC rules.  But for other accounts I've looked at websites and noted Interactive Investors (9), Interactive Brokers (22), Saxo Bank (26), and Degiro (9) do (number of currencies in brackets).  Others?

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33 minutes ago, Harley said:

I've found brokers offering multi-currency accounts being the best both for minimising exchange fees (by a load in advance and buy foreign stocks from there) and playing currency movements (like getting out of GBP).

So which brokers provide these facilities?  I note none can for ISAs given the HRMC rules.  But for other accounts I've looked at websites and noted Interactive Investors (9), Interactive Brokers (22), Saxo Bank (26), and Degiro (9) do (number of currencies in brackets).  Others?

Degiro aren’t allowed to hold your cash. So any money gets put on deposit via the money markets. It adds a layer of counterparty risk.

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Withholding Taxes (WHT) on dividends can be important in deciding which International stocks to buy.  Here are the UK Double Tax Treaties (DTT): https://www.gov.uk/government/collections/tax-treaties.  Some WHT rates are listed here: https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-withholding-tax-rates.pdf and also here: https://www.degiro.co.uk/tax (with lots of other excellently written information). 

So some questions please:

.  US shares in a SIPP are exempt US WHT on dividends because the US IRS see them as a pension.  Any other countries do this?

. You can reduce (but not eliminate) US and Canadian WHT, where supported by your broker, by completing forms such as W-8BEN for the US.  Any other countries (and, necessarily, brokers!) support this ?

. Some ETFs seem to avoid WHT by being incorporated in Luxembourg or Jersey.  Some seem to work for some investors, some don't. I read German investors are still liable for WHT on some ETFs.  How are UK investors positioned?

. WHT is paid regardless of the exchange you bough the share on.  It is based on the country the company is incorporated in.  Correct?  Royal Dutch Shell apparently avoids this by having RDSB versus RDSA shares.  RDSB shares are for the UK incorporated business and therefore avoids WHT for UK residents.  RDSA is listed on the LSE but is a dutch incorporated company and therefore deducts WHT.  Apparently other companies also do this?   Which ones?

. Another apparent way of avoiding WHT is to issue shares (scrip) rather than dividends.  Is this correct and, if so, which companies do this?  

. Unlike individual investors, it looks like pension funds have avoided or reduced a lot of WHT both through the various DTTs and EU rules, although I'm sure they passed the benefits on to their customers!  Looks like this may partially change post Brexit: https://www.ukfinance.org.uk/brexit/eu-exit-withholding-tax-impact-matrixAny updates and how may Brexit affect individual UK investors?

. If all else fails, you can, where possible (many caveats!), claim relief for WHT paid via your UK tax return.  Of the many considerations regarding this is one consideration that the WHT claim has to be against, and only against, the dividend from the corresponding share (i.e. the WHTs cannot be "pooled")?  I think you cannot pool.

.  Any other considerations regarding WHT?

Edited by Harley
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59 minutes ago, Castlevania said:

Degiro aren’t allowed to hold your cash. So any money gets put on deposit via the money markets. It adds a layer of counterparty risk.

Excellent catch!  They say something about covering any loss on a voluntary basis, whatever that means or is worth.  To me one possible approach may be to only transfer what cash you intend to immediately invest in.  The only issue is the time it takes for them to process a transfer.  Maybe, if you wanted more control, you could buy a short term bond ETF and sell that down to buy stocks, but again, when would the cash funds be available to invest in the stock (i.e. what's the settlement period for the partial sale of the ETF)? 

Edited by Harley
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1 minute ago, Harley said:

Excellent catch!  They say something about covering any loss on a voluntary basis, whatever that means or is worth.  To me one p[possible the approach may be to transfer what cash you intend to immediately invest in.  The only issue is the time it takes for them to process a transfer.  Maybe, if you wanted more control, you could buy a short term bond ETF and sell that down to buy stocks, but again, when would the cash funds be available to invest in the stock (i.e. what's the settlement period for the partial sale of the ETF)? 

Generally speaking the cash is available immediately, even if actual settlement isn’t until a few days later.

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So, which brokers offer international investing?

Two catches here which I think don't qualify:

. Telephone trading only.  For me, it has to be on-line and real time (if I choose to stay up at night or get up early!).

. HL and AJB don't buy shares on the international exchanges but buy CDIs on the LSE.

Other people may also add the availability of real time quotes (once you've paid the additional fees).

Here is my draft list as best as I can determine.  Any corrections please?

Australia: II, IB, SB, DG, IG
Austria: IB, DG, SB, IG
Belgium: II, IB, DG, SB, IG
Canada: II, IB, DG, SB
Czech Republic: DG, SB
Denmark: SB, DG
Estonia: IB
Finland: SB, DG
France: II, IB, DG, SB
Germany: II, IB, DG, SB, IG
Greece: DG
Hong Kong: II, IB, DG, SB,
Hungary: IB, DG
Ireland: II, DG, SB, IG
Israel: IB
Italy: II, IB, DG, SB
Japan: IB, DG, SB
Latvia: IB
Lithuania: IB
Mexico: IB
Netherlands: II, IB, DG, SB, IG
Norway: IB, DG, SB
Poland: IB, DG, SB
Portugal: IB, DG, SB
Russia: IB
Singapore: II, IB, DG, SB
South Africa: SB
Spain: II, IB, DG, SB
Sweden: IB, DG, SB
Switzerland: IB, DG, SB
Turkey: DG
United Kingdom: II, IB, DG, SB, IG
United States: II, IB, DG, SB, IG

Note:  DYOR.  For validation purposes only.  Could be errors and no responsibility accepted.  In particular the IB omissions look dodgy (maybe partially depends on the tiered versus fixed pricing option such as for Russia).  Main exchanges only (e.g. XETRA, NYSE, NASDAQ, Toronto SE).  II (interactive Investors), IB (interactive Brokers), DG (Degiro), SB (Saxo Bank), IG (IG)

 

 

Edited by Harley
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Interactive Brokers pricing and market access.  They offer tiered and fixed pricing models.  Contrary to what I would have assumed from the names the tiered sounds better because it provides access to more markets (e.g. Moscow) and it is cheaper for the individual trade quantities and values I would tend to place (e.g.  say 100 to 200 shares at say £10 per share).  But To me that's the problem with IB - it's like buying a BMW with all those complicated extras and catches (including various minimums and maximums)!  Makes it very hard to compare prices with other brokers as you have to assume a specific set of individual trade quantities and share prices (although that is also an issue with the other brokers charging a per share commission rather than flat fee or % of trade value comission).

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32 minutes ago, Castlevania said:

That’s not strictly true. HL will buy a CDI if it exists. If not then they’ll buy on the relevant exchange.

Great feedback thanks.  I thought they specifically say CDIs only (and therefore, implicitly, only certain stocks).  Anyway, would such a trade be at their on-line or telephone commission and what about the quote price, the CDI price? 

Edited by Harley
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CDIs are Crest Depositary Interests and are used by some brokers for international share dealing instead of buying the stock on the relevant country's exchange.

Crest is the LSE and Irish exchange settlements system(?).  CDIs are an interest in a stock listed on an exchange other than the LSE.  You buy the CDI and Crest buys that stock on that other exchange.  I understand (hard to find out!) the stock is held in the name of Crest in the company's register of shareholders but you have an interest under some form of trust arrangement. 

HL has a sheet explaining some of the implications of this arrangement:  https://www.hl.co.uk/__data/assets/pdf_file/0005/9674978/important-info-overseas-shares.pdf

Would it be right to also add:

. Liquidity risk.  Some CDIs have very low trade volumes regardless of the volumes on the primary exchange so in a crunch may you have more trouble selling a CDI versus the primary listed stock?

. Counterparty risk (i.e. Crest)?

I exclude currency risk as it is an overseas stock after all!

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